I must be confusing some of you. Over the last week to ten days I have been using weakness to slowly move into the stock funds. I made a move from 0% stocks to 60% stocks during that time. Then on Friday I pulled a quick switch and moved back to 100% G.
I don't plan to be 100% G fund for very long but there are subtle signs that a quick brutal drop could hit us in the coming days. If I had to quantify it, I'd say there is a 20% chance of it happening. Is a 20% chance a good enough reason to hide when there is an 80% it won't happen? That's your call. I believe any early strength will be sold and that should trigger a little panic.
Remember I was concerned about that ARMs index last week? In a nutshell it was saying the market was dropping but there were no signs of fear selling. The indicator actually moved closer to a sell signal rather than a buy since the S&P 500 made a new high a couple of weeks ago. That's only happened five times since 1965. Well Jason Geopfert at www.sentimentrader.com must have read my mind. This weekend he gave some statistics of what happened during similar situations in the past 40 years. I won't bore you with the details but let me share the bottom line: Jason says:
"The assumption is that this should be bearish, and that’s what most are saying. If investors are not yet “puking” their shares at a heavy pace, then we must have more to go before they do and we can form a low.
The five precedents don’t support that assumption, but
they don’t necessarily refute it either (after all, there are only 5 to
work with). 10 days after we had seen this type of scenario, 4 out of
the 5 actually showed a positive return in the S&P 500. However, the
one negative was a doozy, as the S&P was sliced by over 6%. 30 days
later, things got a little worse, as only 2 of them were positive and
the overall average return was -1.7%. But that reversed again, since
after 60 days 4 of them were positive and the average return had climbed
to +2.3%."
So that is how I came up with my 20% chance of a major sell off.
Once again I am looking for that sell off to use as a better opportunity
to jump back into stocks and I believe that could happen this week, if
it does happen.
On the positive side let's look at the AAII Investor Sentiment Survey I
touched on Friday. We finally hit the 40% bearish mark that I look
for to tell me their is enough fear out there. Of those polled 23%
claimed to be bullish, and 42% were bearish. That 23% bullish
figure is the lowest in over a year, as is the .55 ratio of bulls
to bears. The herd is starting to get nervous. I usually
like to do the opposite of the herd. I'm looking to jump back in
just as they (the herd) are starting to feel the fear. Again, I am
thinking that will be sometime this week.
Chart provided courtesy of www.decisionpoint.com
I may be trying to be too cute here, getting 100% out of stocks because I see the potential for a possible significant drop, but I had to look at the alternatives. I was willing to take a chance on missing the first 1% or so of the coming rally if it meant missing a 5 or 6% mini-crash. I don't know if I am making the correct move but if you remember the TSP Talk mission statement:
"We want to maximize our Thrift Savings Plan retirement accounts and help others along the way. We do this by allocating allocating our TSP assets into the funds which have the highest probability for capital preservation and greatest possibility for increased returns."
This weeks polls on the home page, this comments page, and on the message board are asking for suggestions you may have to improve the site. I've gotten a bit too comfortable with the site lately and I don't want it to get too stagnant. Your input is appreciated. Also, you may have noticed I added Yahoo! quotes and charts of the index funds that we use to track our TSP funds. I hope this is helpful. Click on the charts to see more detailed quotes.
That's all for today. Currently 100% G fund. Looking for weakness to get in some time this week. See you tomorrow.
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